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Growth stocks |
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Growth stocksStocks whose earnings have grown at an above average rate over a number of years and which are expected to continue to grow at a high rate for some time to come.Growth stocks usually trade on higher P/E ratios than non growth stocks, but their share prices also tend to be more volatile, which means they are inherently more risky than other stocks. If their growth falters, the market may punish them by marking down the share price severely.Because their primary attraction is capital growth, growth stock companies are often not expected to pay dividends. The reasoning is that the shareholders are better served by the money being invested back into the company. This is fine if the company delivers on its growth promises, as increases in earnings will, if the P/E stays the same, result in higher share prices. But if the company fails to deliver on its promises, investors will not only miss out on the capital appreciation they expect, but won't even have dividend income to compensate.Similar MatchesEconomic growthEconomic growthThe increase over time in the capacity of an economy to produce goods and services and (ideally) to improve the well-being of its citizens. Economic growth rateEconomic growth rateThe annual percentage rate of change in the Gross National Product. Growth and income fundGrowth and income fundA mutual fund that invests primarily in stocks with a history of capital gains (growth) and consistent dividend payments (income). Growth investingGrowth investingThe approach to investing which aims to invest in fast-growing companies which are rapidly increasing their turnover and profits, and where the expectation is to make money from a rising share price (rather than income).The theory with a growth share is that the share price rise happens in two ways:firstly, through the multiplication of a static P/E on rising earnings per share. So a company on a P/E of 7 with earnings of 10p per share has a share price of 70p. If EPS rises to 15p, its share price rises to 105p.secondly, by a re-rating of the company's P/E multiple. In the case of the company above the earnings of 105p may be accompanied by a rise in P/E ratio from 7 to 10, in which case the share price rises to 150p.Growth investing is often contrasted with value investing. The traditional view is that:value investors look for shares that are cheap in relation to the net asset value of a companygrowth investors are only interested in earnings growthIn fact, there is common ground between the two. Value investors are very interested in earnings if they can acquire them cheaply enough (i.e. on a low P/E), and growth investors don't completely ignore things like company debt and balance sheet ratios.Nevertheless, there is an important underlying distinction between the methods:value investing is based entirely or mainly on quantitative criteria (numbers): on asset values, on cash flow, and on discounted future earnings.growth investing is based on qualitative criteria: on value judgements about the business, its markets, its management, and its ability to extract future earnings growth from its industry. Growth managerGrowth managerA money manager who seeks to buy stocks that typically sell at relatively high P/E ratios due to high earnings growth, with the expectation of continued high or higher earnings growth. Further SuggestionsGrowth fundImmiserizing growth compound annual growth rate Capital growth Normal growth firms Biased growth Aggressive growth mutual fund Growth opportunity Growth rates price earnings growth factor guaranteed growth bond Net present value of growth opportunities growth fund growth bond Compound growth rate Full Employment and Balance Growth Act of 1978(Humphrey Hawkins Act) Constant growth model growth and income fund Compound Annual Growth Rate Aggressive Growth Hedge Fund Stability and Growth Pact Sustainable growth rate dividend growth Engine of growth Growth |
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